Crypto or stocks? Which investment option is the best?
Let’s pretend a little bit, shall we?
Imagine walking into a supermarket to buy some food and stock up on groceries. On your way out, you observe a lottery advert and decide to purchase a ticket to test your luck. You peel off the key, and after you’ve blinked twice, you realise that you’ve just become a millionaire.
First, if you’re like most people, you scream for joy. Then, after the initial celebration, you are now left with a simple question: what next?
What are you buying first, or more importantly, where do you invest this newfound wealth? Will it be in the massive crypto world or the good old stock market?
You finally decide to hire an investment manager to help solve the riddle. So let’s visualise this newsletter as their report in the spirit of pretext.
You probably know what stocks are;
But in case you don’t, they’re shares you buy to gain ownership in a company or organisation. Depending on the type of organisation, they can also be called equities or securities.
The amount of stock you hold is usually equal to a corresponding share of the company.
For example, let’s assume Breach decides to sell 1000 shares at 1$ per share. If you choose to spend $100 on their stocks, you’ll officially own 100 shares. These shares you’ve acquired can increase or decrease in value based on the company’s performance in the stock market.
At a selected time, Breach will pay a ‘dividend’ — a share of the company’s profits based on the number of stocks you own. Sounds like a solid plan, doesn’t it?
Now, let’s talk about crypto.
Crypto is a digital currency used to trade or exchange goods and services. Crypto has become one of the most popular financial assets, and you’re probably reading this newsletter because of your interest in crypto.
If you want to invest in crypto, you’ll need to buy one via an exchange — an online platform where crypto can be bought and sold.
When you purchase a cryptocurrency, it is stored in a digital wallet that only you can access.
New to crypto? Read our beginner-friendly guide on crypto wallets to learn how they work.
Unlike stocks, your crypto investment isn’t calculated according to shares. This is because most cryptocurrencies are decentralised — they do not represent individuals, organisations or governments.
Think of crypto as keeping your money in a foreign currency, only that the currency is digital and not under the control of any government. At the same time, holding certain crypto like bitcoin can also be considered as an investment since their value changes based on the crypto market.
Here’s a quick example, if you buy $100 worth of bitcoin, you’re not entitled to dividends and the value of your investment depends on the performance of the crypto market. Therefore, if the price of Bitcoin goes up by 3%, that means your asset is worth $103. While if it dips by 5%, the value drops to $95.
Sounds a bit volatile, right? Well, that’s the nature of the cryptocurrency market.
Differences and similarities between stocks and crypto
Now that you understand the basics of crypto and stocks, it’s time to decide the best option for investing your newfound wealth. To make the job easier, you need to understand the core differences and similarities between stocks and crypto.
- Stocks are shares of a company, while crypto is a currency. You can easily use popular cryptocurrencies like bitcoin to exchange for goods and services. Stocks need to be liquidated (converted to money) to perform similar functions.
- Stocks and crypto are both traded via an exchange. Some exchanges like Binance focus on crypto, while others like eToro offer stocks and crypto trading services.
- Crypto prices are more unpredictable than stock prices. For example, some crypto prices can rise and fall by almost 1000% in a single day. This is because the crypto market is unregulated and depends on the laws of supply and demand. When there is s high demand for a coin i.e. ‘bitcoin the value increases, while the opposite occurs during periods of low demand.
- Unlike crypto, stocks are regulated.
- Stocks have been around for a while now. However, Crypto is the newest kid on the block.
So, what are the advantages or disadvantages of investing in a stock or cryptocurrency?
Let’s begin with stocks.
- Stocks have a long track record of producing solid returns over time.
- Stocks are backed by physical assets and represent an actual share of a company.
- Stocks allow you to invest in as many companies as you choose.
- Thanks to regulation, stock owners are protected by many rules and regulations that shield them against manipulation or fraud.
- Stock prices can change in an instant and are affected by political and social events. A simple protest can affect your stock price even when there is no connection between the company and the event itself.
- Stocks take time to mature. You need to be ready to wait before receiving significant profits from your investment.
- Cryptocurrencies are not controlled by a regulatory body which makes them decentralised. In simpler words, there is no central bank or governing body involved in overseeing the affairs of cryptos. This saves you from a lot of paperwork and regulations from the government.
- Cryptos hold the potential for massive gains. You can triple your wealth from a single trade, thanks to its volatile nature.
- Cryptos are the future of financial trading and are slowly becoming accepted as legal tender worldwide.
- The same way you can triple your wealth with crypto is how you can lose your entire fortune. The prices of cryptocurrencies are pretty unpredictable.
- Cryptos increase your risk of facing cybercriminals or hackers due to their digital nature.
- While stocks are actual shares of an actual company, cryptos do not hold the same value. Many cryptocurrencies are not backed by physical assets, so in essence, they can only be used digitally.
With the report done and dusted, here are our final thoughts:
Stocks are less risky investments than crypto. In contrast, crypto offers better opportunities to make impressive profits. You should aim to diversify your portfolio between crypto and stocks to achieve a perfect investment balance.
Whatever your plan may be, remember to invest a portion of your wealth that you can afford to lose in either crypto or stocks. Good luck!
Did you enjoy today’s newsletter?
If yes, let us know which you prefer: crypto or stocks? Also, don’t forget to share what you learned today with two or more people. Remember that sharing is caring, and your action could go a long way toward helping others.
We also recommend joining the Breach community to enjoy the best experience with crypto curious friends.